1998-01-26 Workshop and Regular Meeting of City Council

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Steps Taken by LPAWA Since the decision by the LPAWA to consider the purchase of additional capacity, the following steps have been taken. Espey, Huston & Associates, the designer of the current Transmission System, was engaged to review the impact on the transmission system if an additional 3 mgd were added to the supply system. Their report was favorable with only minor adjustments needing to be made to the system and its operation. 2. Reviewed a funding plan that allows the Authority to set aside, from currently planned activities and operations, over $2,000,000 to pay for the additional capacity. This represents about 57% of the amount needed to fund the 3 mgd purchase. In addition to this amount, the LPAWA expects to save at least $500,000 in refunding the 1988 Bond issues. This refunding is targeted for December 1998. Attached as Attachments B and C are documents provided to the LPAWA at an October 1997 meeting. Attachment B was Item 6 on their agenda and covered the Funds Available for Purchase of Additional Capacity. Attachment C was Item 7 on their Agenda and dealt with Refunding of LPAWA Debt. As noted in the documents, it is anticipated that any additional funds needed to pay for the purchase could be obtained from the three entities or local industries needing water. The LPAWA could also borrow the funds needed to complete the purchase. Where We Are Now In order for this project to work, it is necessary for the Gulf Coast Water Authority to construct the 16 mgd expansion to the Texas City plant. To do this, they have to issue debt of about $20 million. Before they can issue debt, their bond counsel and financial adviser has determined that they need firm commitments from the entities participating in the purchase of the 16 mgd at the Southeast Plant. They are not comfortable with a letter of intent or a resolution stating that the entities want to purchase funds. Gulf Coast Water Authority began discussions by providing the entities with two options, either place the money in and Escrow account, with a third party bank, where the funds are due and payable once the water is available or you could pre -pay for the water you were purchasing at a rate discounted for the time value of money (in this case, about 99 cents per gallon versus $1.1688 per gallon in three years. As mentioned earlier, there are four entities participating in the purchase. One of the entities, the City of League City has borrowed the money and will pre -pay $5 million for their share of the water. The other two entities are selling bonds and will place their money in escrow. Staff, on behalf of the LPAWA argued that we did not want to incur the expense of selling debt since our initial plans were to pay cash for the water in three or so years and we felt that they should pay for our additional expenses if they forced us to issue debt at this point. After negotiating with them, we were able to reach an agreement where we pre -pay $500,000 at this time and the remainder will not be due until the water is available. If the deal were to fall through, we would get our funds, with interest, returned to us. 3